Making Money Count

After four years of exceptional returns on the JSE, South African investors have endured one shocking year. The market is back to the level it was at in 2006, wiping out all those gains – but if you rode the bull market from 2002 to 2007, you most likely will still have outperformed cash and bonds.

Despite what has happened on the JSE, there is no need for long-term investors to adjust their strategy. However, the most vital aspect of retirement planning, explains Citadel wealth planner Andrew Finlayson, is that you do have a strategy.

He lists three key components of any retirement plan: understanding the capital you have available, projecting your future expenditure and anticipating any post-retirement income.

Once the primary income is gone post-retirement, household costs have to be reduced – but you will still want to maintain a certain lifestyle and household.

“All costs have to be extrapolated into the future to provide for inflation,” says Finlayson.

“Once we know the individual’s monthly cost of lifestyle, adjusted for inflation, and have an assumption as to what the return on investment will be, then we can determine how much capital he needs to put away.”

Retirement is a chancy business, and few financially literate people today retire without making provision for some post-retirement income, such as rental or part-time work.

Andrew Warren, a director at Liberty Life personal lines says the key to retiring rich is to start saving as early as possible. Many individuals, strapped for cash or eyeing a major purchase, tell themselves they can make up for lost time by making higher contributions in future years. Unfortunately, money doesn’t work that way. Thanks to the power of compound interest, cash invested today has a disproportional impact on your wealth level at retirement.

Retirement annuities (RAs) are one of the most efficient ways to save for retirement, because of the tax advantages. However, Finlayson claims they have a bad reputation with regular investors, and would only recommend them to people if there is a clear tax benefit.

“A lot of people say it was the worst investment they ever made. This is not the fault of the product itself, but the fact that many of the RA product providers are focused on the savings aspect and not the investment performance,” he says. The argument forwarded by the insurance industry, he claims, is that the primary advantage of RAs is their ‘forced savings’ characteristic.

“As a result there is very little focus on investors’ financial circumstances, and asset allocation, and they are simply a vanilla investment solution.”

In the case of entrepreneurs, Warren says they would be likely to get the tax benefit, because they structure their own plan, “and in this case an RA is very beneficial”.

“An RA is a vehicle offering access to a wide range of asset classes and can be completely bespoke to the individual, or he can select from a wide range, or change the mix as his circumstances change,” says Warren.

He emphasises that the contractual savings nature of RAs is not to be under-estimated.

“It locks in those savings. Casual savings are too easy to dip into if some emergency crops up during a year. For someone lacking personal discipline, this is the product to go to first.”

Finlayson concedes that the investment performance of RAs have improved recently. For instance, Citadel, Liberty and Allan Gray all offer RAs that have a focus on asset allocation.

One alternative to insurance products is the JSE. Many investment advisers had been suggesting for some time that local markets were over-priced, and the prudent investor should have been reducing his exposure to equities

Finlayson says Citadel had been reducing wealthy clients’ exposure to equities for two years, and as a result Citadel’s portfolios are only 4%-5% down this year, compared to the JSE’s 25% losses.

The problem is that nobody can predict the bottom of the market. For instance, notwithstanding six months of market correction that hit financial services in particular, stocks in several major British banks still managed to drop 40% in a single week in the middle of January.

On the other hand, no less an authority than investment guru, Warren Buffet, says this is the time to be “greedy” with equities and buy in. Finlayson agrees with this, with the caveat that the investor has a 5-10 year investment horizon.

For investors looking at diversifying, he suggests that the investor’s own home is probably sufficient exposure to direct property, and those looking for more property should consider listed property.

“The costs of transacting in physical property are high, they are extremely illiquid and the price is unknown, being determined by the market,” he says. If someone is still insistent on physical property for the rental income, he advises bonding it for the tax advantages.

One of the best returns one can achieve in the short-term is to pay spare cash into one’s bond. Finlayson explains: “If you look at the economy and the direction of corporate returns, a guaranteed after-tax return of 13% will probably outperform any other current return.”

Both he and Warren agree that paying more into your bond is a good short-term strategy, but it excludes you from potential opportunities in the equities market.

One of the hardest calls at the moment is offshore investments. They have on average performed considerably worse than the JSE. The result is that their relative pricing is better than the JSE, and top global companies are available for bargain prices.

Finlayson says: “There are really good opportunities. These are companies that may still struggle for a year, but will do well over the next 5-10 years.”

Richard Carter, head of product development at Allan Gray Unit Trusts Management, says: “The difference between fund returns and investor returns is likely to increase during times when the market is very high, decreasing, or very volatile. These extreme conditions unsettle investors and increase emotion-based, short-term investment decisions.”

Before becoming a financial writer and freelance journalist in 1997, Eamonn Ryan was a legal adviser, company secretary and alternate director at listed company Cashbuild Limited from 1988 to 1997. Since becoming a financial writer, he has focused on the business and financial sectors, as well as personal finance, writing for Finweek, The Star Business Report, Sunday Times Business Times, Business Day, Mail & Guardian, Entrepreneur, Corporate Research Foundation (which brings out a series of books each year ranking SA’s best employers and best managers), as well as a host of once-off and annual publications such as ‘Enterprising Women’ and ‘Portfolio of Black Business’. He also writes media releases, inhouse magazines and sustainability or annual financial reports for various South African corporates and financial services groups, including the Ernst & Young annual M&A book.

Whether it’s saving for retirement or paying off credit card debt, money management can be a challenge. Of course, different people have different concerns – and that often comes with age. While a 60-something baby boomer might be organising their savings for retirement, your 20-something millennial might be focused on paying off student loans.

In a recent study, financial intelligence company Comet surveyed more than 1 000 people to uncover the top financial concerns of various age groups, as well as the financial advice millennials and Gen Zers want to know and what they hear instead.

Overall, saving for retirement was the top concern across all age groups, with saving for an emergency and affording monthly bills following in second and third. However, it’s no wonder these are some of the most pressing worries – according to the research, 23 percent of people admit they don’t have a savings account, and 43 percent reported not being on track towards their retirement goals. Perhaps that’s because they didn’t hear the right advice growing up. At least that might be the case for Gen Zers and millennials.

According to the research, these young people want to learn things such as how the stock market works, how to manage an investment portfolio, how to invest in real estate and how to build credit. Instead, they’re simply told how to create a budget, save for retirement and pay credit card bills in full every month.

14 Ways To Make Quick Cash On The Side

Need to make some fast money on the side, whether it’s to pay off a credit card or to make your rent?

Keep in mind, making quick side cash isn’t about making a lot of money or getting rich. It’s about getting a shot of capital to help tide you over and put something extra in your pocket. However, some of these side-income ideas can build up your wealth over time. There’s many ways to accomplish this: By participating in the gig economy, the sharing economy, online sales networks, passive income techniques and more.

If you’re looking to make extra money in a relatively short period of time, check out these 14 slides.

Take Advantage Of Financial Democracy Made Possible By The New Stock Exchanges

Because it creates a society able to afford products and services. Without it, even the innovative products and services that are entrepreneurs’ bread and butter will fail.

What is financial democracy, exactly?

It’s both the right and the ability of the (wo)man in the street and business people to make the decisions that affect their financial circumstances.

Financial democracy does not automatically follow political democracy. For almost 25 years after South Africa’s political transformation, the exclusiveness of our financial markets continued to deprive the vast majority of South Africans of the means to invest, save, and build wealth. South Africa has, therefore, never developed a retail stock exchange environment. So, it has deprived the majority of small and medium sized business of access to capital.

For entrepreneurs to truly flourish, they need a mechanism that easily and seamlessly connects the investor pool with every size of business. And, they need affordable ways to enter both the retail and institutional market.

In short, they need stock exchanges. Ones on which listing takes weeks rather than years, doesn’t break the bank for listing fees, and provides the shortest route to the largest possible potential investor base.

That’s not been possible in the stock exchange monopoly that existed for six decades. Now, it is.

What’s changed?

We now have four new stock exchanges. The resulting competitive environment will significantly reduce the cost of listing – and the cost for investors of buying and selling shares.

Instead of restricting share trading to people or organisations who already have tens of thousands of rands to invest or millions to spend on listing, by licensing four new stock exchanges, the Financial Services Conduct Authority (FSCA, formerly the FSB) has recognised that most financial decisions do not call for high levels of education.

Most people know how to spend their own grocery money. Most know that it’s better to keep their R1 000 monthly income in a coffee jar than spend R50 of it on bank account fees. People who can barely read and write are immensely skillful at manipulating air time deals to their advantage.

There is significant financial savvy in all social strata.

In the same way, although the mechanics of bookkeeping and accounting may be unfamiliar territory to many entrepreneurs, most have a clear understanding of the difference between profit and loss.

The FSCA has therefore enabled democratisation of the financial markets by enabling the broadest possible spectrum of entrepreneurs and investors to use stock exchanges to participate in and contribute to the economy – on their own rather than prescriptive terms.

How do you take strategic advantage of this democratisation?

Base your business strategy on people’s instinct for making decisions in their own best interests. Trust financial decentralisation, such as one sees in crowd funding and in digital environments such as block chain, where people would far rather trust one another than institutions and governments. This is democracy innately at work in the financial environment and it’s accelerating organically as digital technologies give people more means and the confidence to help themselves – to information and opportunities. Ride the wave.

Tap into people’s desire to innovate. Consumer organisations have proved that letting people interactively help them develop products is a powerful growth engine. Apply the principle by letting people grow your business by buying shares in it, giving you capital and themselves a platform on which to build wealth.

Remember, the ultimate loyalty reward is equity.

Your financial democracy business plan

Look to list on an entrepreneurial stock exchange; one that was founded by entrepreneurs on entrepreneurial principles.

That means: A stock exchange that is already built on financial democracy and decentralisation. One that has, at its core, a single operational concept that keeps things simple for you, automatically gives you an immediate competitive advantage, and, ensures that no matter what your business needs in terms of attracting capital, the exchange can provide all the options in the same, consistent way.

What does such an exchange look like?

It has fintech capabilities. So:

It slashes your listing costs. It achieves this, among other things, by enabling you to populate an electronic prospectus, demonstrating your financial viability, and self publish.

It gives you control by having the granularity and agility to impose relevant governance right down to the individual investor. You get to decide the types and quantities of investors you want to attract. This also enables you to achieve black economic empowerment in perpetuity.

It leads the world by clearing and settling trades in T+0. No-one in the value chain has to hold large sums of money for days following a transaction. Small transactions become profitable. Investors don’t have to risk their life savings on a single large trade. A retail market is opened. An investment and savings culture is entrenched. The economy expands. Your business grows steadily.

It enables anywhere, any time trading via a mobile app that allows investors to see share value in real time. See economy expansion point above.

It integrates processes and procedures, simplifying them and ensuring rapid onboarding of issuers and, therefore, speed to market with new concepts and alignment with the digital economy.

It operates a principles-based regime. So:

It treats you, as an executive, with respect. It’s not prescriptive. It does not insist on excessive oversight, allowing the Companies Act to guide you to sustainability.

It does not attempt to squeeze your company into a pre-defined business or listings format. It recognises and works with your uniqueness.

It obviates the need for expensive specialist listings advisors.

It focuses on financial inclusion and access. So:

Shares can be bought and sold for no more than R1 000. See economy building point above.

The new world of stock exchanges is integrated, synergistic, holistic, organic, self-fulfilling

Decentralisation of financial control, democratisation of opportunity leads to a whole new economy. One in which, for instance, a taxi operator can finance a minibus through a company in which his purchase gives him shares. A single purchase gives him two benefits: a vehicle on which to found his business and a longer-term investment in shares that he can trade. The funding company gains liquidity through access to a wider base of investors while being able to control who buys and sells and the conditions on which trading takes place. Increasing black equity in business becomes an organic, natural, self-perpetuating process.

Everyone wins in a decentralised, democratised financial market. And it’s the stock exchanges that drive the process.

As an entrepreneur, can you afford to ignore the acceleration that listing could give your business growth?